It's Now a Renter's Market* *(in some areas)

By
Commercial Real Estate Agent with NAI Tampa Bay

Across the U.S., desperate landlords are coming up with novel ways to attract new tenants and retain old ones.

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Amy Gips loves her one-bedroom apartment in a swank Manhattan building that features a gym, golf simulator, yoga studio, and massage rooms. But she no longer feels she can justify paying $4,400 a month in rent, especially now that her ex-boyfriend has moved out.

A week ago, just as the 27-year-old associate at a private equity fund was planning her next move, a letter arrived from the property management company. The rent for the 750-square-foot Chelsea apartment with floor-to-ceiling windows overlooking Madison Square Park was reduced $900, or about 20%. It changed her calculus, though she hasn't given up on the idea of shopping around for something under $3,000 a month, with one or two months of free rent thrown in.

For years, rising rents in Manhattan were thought to be as inevitable as baseball at Yankee Stadium. But times change, and in New York, landlords are scrambling to hold on to renters who have been hit by the economic downturn.

That means renters who, like Gips, are still in good financial shape now have the whiphand. "I was thinking that the rent was so high that there was no way I'd consider staying," says Gips. "Now that they've offered the reduction on their own, I kind of feel I should do a bit of negotiation."

Avoiding Empty Apartments

During the six months since the financial crisis began in earnest, control of the Manhattan rental market has switched to the tenants, who no longer have to pay broker fees (traditionally about 15%) and who can get up to three free months of rent and even gym memberships thrown in just for signing on the dotted line. The power shift might not be as dramatic in other parts of the country, but rents are getting more affordable from Charlotte to San Francisco. And landlords everywhere are getting more creative (and desperate) to hold down vacancies and prevent turnover. • Landlords figure it's better to take a hit by offering a month or two of free rent and other freebies than to carry empty apartments that aren't generating income.

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It's a nationwide phenomenon, according to Victor Calanog, research director at real estate data firm Reis. Half of apartment buildings reduced rents in the fourth quarter of last year and the first quarter of this year -- the highest percentage since Reis began tracking apartment data in 1980. (By comparison, only 17% of buildings reduced rents in 2007.) And average asking rents fell 0.6%, to $1,046, in the U.S. in the first quarter, compared with the previous quarter, the largest drop since Reis began collecting quarterly data in 1999. And average effective rents, which include free months and other landlord incentives, fell 1.1%, to $984.

Effective rents fell in 64 of 79 markets that Reis tracks. Effective rents in San Francisco dropped 2.8% in the first quarter of this year, compared with the previous quarter -- the nation's largest quarterly decline. Rents fell 2.6% in New York City (all five boroughs), 1.3% in Charlotte, 2.5% in San Jose, 0.9% in San Antonio, 0.9% in Cleveland, 1.2% in Chicago, and 2.3% on Long Island. Only a few markets, such as Houston and Dallas, showed increases, Calanog says.

 

For Full Article written by Prashant Gopal via Yahoo Finance & Business Week, click HERE <-----

Comments (5)

Steve Chaisson
Keller Williams - Nashville, TN

people are consolidating expenses - we initially had a small rental boom, but now rates have decreased somewhat in middle Tennessee

Apr 11, 2009 12:54 PM
Sean Dreznin
NAI Tampa Bay - Sarasota, FL
Commercial Investment Real Estate Agent

Steve,

Even in downbeat Ohio where the economy was never really booming, but up a squeak, the rents have fallen a bit, vacancies appear up and landlords are making offers to tenants to entice good renters.  I know I haven't raised my tenants rents in over a year... Just want to keep my good tenants!

Sean

Apr 11, 2009 12:57 PM
Justin Ukaoma
Vizion KC - Kansas City, MO
Kansas City Real Estate Investments

I really haven't noticed this in my area yet but I could totally understand it happening.

Apr 11, 2009 12:59 PM
Tim and Pam Cash
Crye-Leike (Sango) - Clarksville, TN
Real Estate Professionals - Clarksville TN

Interesting post.  I had not thought that the rental units would be effected like that.  In our area, there seems to be more of a demand on rentals.  I gotta say though, we dont have any offering golf simulators or massages. 

Apr 11, 2009 01:10 PM
Charles Perkins
Charles G. Perkins, CPA - Burien, WA

I have seen this in the Seattle area yet.

Aug 17, 2009 04:19 PM

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